It isn't every day that a $1 billion dollar startup launches in the Middle East, let alone in the e-commerce space. Following on from my post in September 2016 I've been keeping an eye on noon's domain and infrastructure to see what pops up.

I've been putting this post off for a while as my initial idea was to dive as deeply as I could into noon's stack by looking at what was sitting at various levels from DNS downwards. However, noon's beta recently popped up publicly for a short while, giving me an opportunity to poke around and take an early look at their upcoming product.

Here's what I've seen so far:

Homepage

You land on a responsive page where a large hero banner greets you. Up top you'll find from left to right a toggle for Arabic, a magnifying glass icon to access search, which is popped open by default. If you're signed in, the default help text in the search bar will greet you with your name and the time of day. A nice touch.

The top navigation bar continues with the noon logo which always brings you back home, followed by a very prominent Track Order button.

Clicking on the button results in an on-screen overlay that provides a view of upcoming shipments. Given the prominence of the button and the fact that it results in a pop up rather than taking you to another page, suggests that noon is working on some form of speedy delivery with (live?) tracking built in.

Next along is a Chat button, which isn't functional at this time. Taken together with Track Order, it feels like noon has squarely set its sights on an immediate, highly responsive, real-time like experience.

The top navigation ends with an icon representing a person which takes you to your account followed by a cart icon, which takes you to your cart!

Below the top navigation is a slim black navigation bar with links to top categories. This is visible on initial load, but disappears as your scroll. The top navigation bar retains a permanently fixed position.

The rest of the homepage is broken into a variety of banners and sections such as best sellers. Standard fare for an e-commerce offering.

Wrapping up the home page we arrive at the footer, which is double height and is split into a black area highlighting key categories with icons, whilst a call to action takes you to an all categories page that I wasn't able to access. The second half of the footer is a shade of dark grey and includes two lists of categories, a set of links to other areas of the noon site as well as the usual social icons, app icons and contact information.

Categories

Category landing pages differ in terms of layout based on which category you've selected.

The Electronics category landing page has a row of rotating subcategory banners followed by an area that highlights specific individual products.

As you scroll further, the page gets a little bit more interesting with a mixture of text links highlighting products within a subcategory, a section for best sellers and more text links leading off to other subcategories.

The Health and Beauty category has a slightly different layout, including a set of narrow banners and accompanying text leading off to subcategories, a list of best sellers, followed by a hero banner image.

It is natural for primary category landing page to vary a fair amount, as they will tend to get traffic from SEO, PPC as well as direct, making them key merchandising opportunities. Over time, they'll turn into real estate that brands and sellers will be willing to pay for.

Product

noon's product page compromises of a large hero image, a product information box that includes a product title, price, a quantity drop down and two call to actions. It is notable that the Buy now button is yellow and is highly visible whilst the Add to Cart button is white and blends into the page. This again points to noon's experience being built around immediacy versus your typical e-commerce experience. The Buy now button wasn't functional, but the Add to Cart button added a single quantity to my cart.

The other bit to note here is the text that states "Sold and Fulfilled by noon". My understanding is that noon will procure inventory as well as take it on consignment from those who are willing to give it to them. Suppliers have been asked to ship inventory to noon's warehouse, from where all fulfilment will take place.

The rest of the content on the product page compromises of a description, which at a quick glance looks like it is brand, manufacturer or publisher copy. Some products include technical details, with attributes varying by category. A couple of widgets that provide bundling opportunities and display related products were also visible.

Sign Up and Account

Sign up can take place via a mobile number, email address or the usual triumvirate of Google, Facebook and Twitter. I was able to sign in with the same credentials that I use with a test seller account.

noon's account area is broken up into Orders, Returns & Exchanges (sic), Address book, My Wallet and My Profile. Each area has default landing text and appropriate call to actions if no data is available yet.

It is very encouraging to see that returns handling has been thought through and has an area dedicated to it. Unfortunately this has tended to be a bit of an after thought in the region.

I'm not sure who this handsome Emirati man is, but I assume that he'll be replaced with your own image if you sign up or sign in with a social service that provides access to a profile image. The Address Book page is the most colourful that I came across and matches noon's pre-launch landing page. It's an interesting detail that the Emirates Airline graphic has been carried over.

The last area of interest is My Wallet, which provides transaction history as well as a way to manage your saved cards. I tested this using test card numbers from CyberSource and added a Visa as well as an Amex card. This seems to confirm the rumour that noonPay will initially be a wrapper on top of CyberSource, but I've been told that these card numbers work with other payments gateways as well.

Cart and Checkout

Hitting the cart icon in the top navigation bar took me to a cart page, summarising my order and giving me two call to actions, one which allows you to continue shopping and the other which takes you to checkout. The payment icons on the page notably don't include an icon for Cash on Delivery.

A line of text notes that delivery starts at AED 14. Assuming that this number is not a filler value, it lines up with local delivery costs in Dubai and if anything is a touch cheaper than other carriers.

I incremented the number of items that I had in my cart and managed to rapidly increase the item count as well as the corresponding AED value. It did not feel like this was connected to noon's ERP system as I went well beyond a reasonable in-stock count for the SKU I tested with.

Hitting the Checkout button, I moved to the first step of checkout. noon's checkout is not enclosed, which is a know industry best practice to remove unnecessary elements to minimise distraction and help customers journey efficiently through the purchase funnel. The top navigation bar remain visible and allows navigation elsewhere using any of its icons.

The delivery method is titled "Personal delivery" with what looks like a noon truck icon perhaps indicating that noon may have its own fleet up and running at launch. The delivery cost stated an overly reasonable AED 15 with a bunch of items in my cart, making me question if an actual calculation was yet to take place.

I hit the "Add or change" link which took me to a select your address screen, where I hit the Add new address button.

I arrived at what for all intents looks like a search bar. I typed in city names, country names and all sorts of other things before trying the Done button, which eventually took me to a standard address form.

I was able to fill out every value on the form save for the Country and City field which would always take me back to the search bar. It took me a while and a look at developer tools to figure out why this was taking place. While it wasn't loading up, this particular page was attempting to load Google Maps and assumedly use the search bar to narrow the viewable area to one that was more relevant.

A Google Maps API key (hopefully one that isn't going to create a security incident) is visible as is a set of latitude and longitude GPS coordinates. The two in my screenshot point at the first interchange on Sheikh Zayed Road, which is where Google Maps places its Dubai label. Centring the map at this point may indicate noon's use of geo IP information to get a broad city location.

The use of Google Maps to capture GPS coordinates again points to noon's intent to build an experience around immediacy.

As I was unable to manually fill out the Country or City field, this prevented me from unfortunately getting any further in the checkout process.

Terms of Sale

noon's Terms of Sale is a long document, so I won't go into all of it. It does however make for interesting reading and provides more insight into their business model.

2.3 states that they only accept Visa and MasterCard versus the Amex logo on the cart page together with being able to add an Amex test card to my account. It does however confirm that Cash on Delivery will be available.

The final bit of 2.7 c) is interesting in that it states "collect from us". I wonder if this indicates that pick up points or the ability to pick up directly from retailers is in the works for the near future.

3.4 indicates that noon may work with suppliers that aren't located locally potentially moving away from a fully stocked model in the future. This makes sense given the sheer size of the catalogue that they're aiming to carry. At some point, it won't be commercially viable to carry every single SKU in stock (whether you own it or not), as the depth of demand will not match markets such as the US. Also the Pareto principle applies.

4.1 states that noon will offer a thirty (30) day return policy on almost every category, save those where a longer return policy may apply.

4.8 indicates that noon will not cover the cost of outbound shipping when a refund is calculated, but will cover the cost of return shipping in some cases.

4.10 states that a re-stocking fee of up to 30% will apply on certain product categories, if a return doesn't meet the conditions stated in 4.5 or if the return is outside the return window, opening up the possibility of returns beyond the thirty day window.

Clause 5 states that noon will provide a warranty on a number of different product categories. This indicates a willingness to source product flexibly (read: grey market), allowing pricing power versus the desire of principals and distributors to maintain price parity across channels.

Notes

A few thoughts and observations to wrap:

1. Chat & Scalability

I didn't spot a contact form or an email address through which I could reach noon's support team. This indicates that chat will be the primary support mechanism. While it allows support to be very responsive, chat doesn't scale as efficiently as email and if anything is very akin to offering phone support. Conversations take longer to get to the point, taking up more time than they should, whilst support teams tend not to be as good juggling multiple chat conversations as they are at dealing with multiple email cases.

Keep the customer waiting in a chat conversation and the support experience declines rapidly in minutes versus respond to a customer's email within a couple of hours and you'll get a pat on the back for being incredibly responsive.

2. Thirty Day Return Policy

Incredibly positive for potential customers but I'd question the commercial feasibility especially for categories such as Electronics.

3. Mapping in Checkout

I can understand the use of mapping on mobile devices where a GPS sensor is readily available to provide accurate location data (if permissions allow one to do so), but getting location data is significantly harder on tablet and desktop devices very few of which have access to a GPS sensor, forcing the user to manually input their location. Not an easy ask.

4. I tried noon's 800 number, but it didn't ring.

5. I didn't see any options for other currencies or the ability to toggle to other countries. What I've seen so far feels very UAE specific and I wonder if and how customers in Saudi Arabia will be served at launch.

Following on from my last update on noon and all the drama that came after, someone likely in error, dropped me a line with what looks to be noon's latest and possibly final seller pitch deck before they go live.

The deck goes into a fair amount of depth versus material seen previously and makes for interesting reading for anyone in or considering entering the region's e-commerce space.

As an aside, I found a couple of the slides to be curiously similar to some of my prior work at JadoPado.

If rumour and Reddit be true, noon is set to go live on the 15th of August 2017.

On the 14th of March 2017, a Souq.com subsidiary, Q Tech General Trading LLC's trade license looked like this:

A day later an action took place to remove the Emirati individual who owns 51% of the business and replace him with Links Regional Commercial Brokers LLC.

Similar actions have taken place for a number of Souq's other subsidiaries, including Q Express and Helpbit:

Helpbit

Q Express

To an observer who has been through a fundraising exercise, it is pretty clear that multiple changes in quick succession to the underlying corporate structure of an organisation are indicative that a clean up process is taking place to close out conditions precedent, or CPs in industry parlance. Essentially, events that need to take place before a transaction can close.

The Links Group are a well known corporate service provider who provide nominee ownership structures to entities that need stability and continuity in an operating environment that demands that a local partner own a simple majority of any onshore, non-freezone operating business.

It is common practice for trade licenses to be set up with informal or loosely formal contracts together with an Emirati individual who consents to act as the local partner for a fixed fee and no other rights. However, regardless of the existence of side agreements (which are very unlikely to hold up in court), the local partner has the same rights over a business as any other shareholder would, including the proceeds of a sale, dividends and other forms of payout.

When a transaction takes place, it is equally common for these arrangements to be thoroughly scrutinised and then amended in order to provide assurance and comfort to a potential buyer that the deal their signing is watertight, will protect their economic rights and will not result in future legal actions demanding damages or payouts.

If Souq were being taken over by Emirati or GCC based shareholders, a corporate nominee owner would not be required and the equity of any subsidiary could be owned outright by a parent entity who would de facto be considered to be Emirati or from the GCC. Whilst unlikely, the Emirati or GCC shareholders could alternatively assume direct control over each subsidiary and not need nor incur the cost of a corporate nominee.

For example, take a look at one of Emaar's subsidiaries, Emaar Technologies LLC:

The entity is owned 99% by Emaar Dubai LLC and 1% by Emaar Properties LLC. You can continue to trace this structure upwards until you get to Emaar Properties PJSC, which is Emaar's primary entity listed on the Dubai Financial Market (DFM).

The entity is owned 99% by Majid Al Futtaim Holding LLC and 1% by Majid Al Futtaim Ventures LLC. Again, you can continue to trace this structure upwards until you get to a set of shareholders.

The logical conclusion is that Amazon (or a non-UAE or GCC entity, if you remain sceptical) has taken over Souq and the transaction is in its final stages of closing, regardless of any last ditch attempts.

P.S. The transaction, widely estimated to be in the $650 million range is equivalent to 0.16% of Amazon's market cap today. It is arguable that there isn't a need for for Amazon to publicly announce that a transaction has taken place, as the size won't have a material affect on their share price. Let that sink in for a bit. The largest technology exit in the region will barely register a blip globally. We've got a long long way to go.

This is a short research note pulling information together from various sources. Where possible information has been cross checked with an independent second source or is based on evidence.

Synopsis

It is expected that Alabbar will launch Noon.com (aka Project Next), a marketplace style, fulfilment driven fashion focused e-commerce play on the 11th of November 2016 (Single's Day in China) in early January 2017.

Noon is a beautiful palindromic name that is the vocalisation of the letter "n" in Arabic.

Other business models in the works include a payment gateway product, an events ticketing platform and a travel play.

Alabbar Enterprises has expressed interest to build, acquire and invest in existing players. A number of conversations have taken place from an exploratory perspective but the trigger is yet to be pulled on a significant investment in the region.

Key Events

On the 4th of June 2016, Mohammed Alabbar delivered a keynote speech titled "The Arab Digital Transformation" at the Ramadan Majlis of Sheikh Mohammed Bin Zayed, the Crown Prince of Abu Dhabi. The presentation in Arabic is available on YouTube and provides important context for the play at hand.

c. Alabo Technologies Private Limited India, CIN U74900DL2016FTC291922 (RoC Delhi), formed on 1st March 2016. Directors are Sanjay Bhasin and Fodhil Benturquia. Company is a subsidiary of a foreign company.

e. Project Next is also using Square-8, an architecture and design firm located in Building Three, Emaar Square for organisational administrative support.

f. Noon Holdings AD Ltd, was setup at the beginning of May 2016 in the DIFC as a non-regulated entity.

g. A new set of operating entities that reflect the Noon name were setup at the end of August 2016. These include Noon Management Services, Noon Payments, Noon Express, Noon E Commerce and Noon Warehousing.

Funding

Reports indicate that at least $1bn in funding is available to the venture. $500m from the Public Investment Fund of Saudi Arabia, available in tranches as well as $500m from Abu Dhabi, assumedly on similar terms.

Business Models

E-commerce Marketplace + Fulfilment

Payment Gateway

Events Ticketing

Travel

Engineering Stack

Scala, dotNet

Hiring

Hiring has taken place across the board from major regional Internet players such as Souq, Namshi and others. Entering into the hiring process is subject to signing an NDA upfront with key hires citing "Stealth Startup" as their new employer.

Reported offers have generally been well above market compensation ranging from 45% to 2x over current pay with additional bonuses.

Fulfilment Fees

Storage Fees

Fees are subject to change, but have been indicated to be 90% accurate.

Fulfilment Centre

A large distribution and fulfilment centre will be based in Dubai South. Capacity is expressed to be multiples of the largest player in the region, but it is not clear to what extent. A vendor reports that they've been requested to supply racking that is similar to an existing large e-commerce retailer's environment but have also been asked to provide palletised racks which indicates that bulk pallet storage will also take place.

It is expected that fulfilment services will be provided to third parties, potentially indicating that Noon.com may manage and fulfil for a given brand's other channels. Zara has been indicated as a potential customer.

Seller Dashboard

Sellers are expected to have a dashboard available in the next couple of weeks.

Categories

It is expected that Noon.com will focus on branded fashion including luxury names such as Gucci and Chanel, whilst other categories will be built alongside.

Noon Pay

An industry insider speculated that Noon Pay may look to position as a PayPal style wallet where the Noon.com marketplace is a key channel for user acquisition and the capture of payment details. The captive details would be subsequently used to sell through other services.

Onwards

I'm nothing but excited for what all of this means for the region. E-commerce and by extension digital is finally getting a fair shake. While no-one with any sort of commercial interest in the space would applaud the rise of competition, it is clear that this will grow the region's digital infrastructure in leaps and bounds, hopefully marking a milestone for a lot more to come.

Updates

September 27th 2016: I was wrong about Amira Rashad, who's off doing her own thing. I've been told that Sanjay Bhasin is no longer involved with the project. Launch date has been pushed back to early January 2017.

October 4th 2016: Adds details about new entities that use the Noon name.

In 2014, Studio D were commissioned by STC to help them build a digital first telco operator from the ground up to cater to "the Saudi Youth". The new service, Jawwy was launched in May 2016, leading Studio D to share their data from an epic deep dive into Saudi culture.

Every year Iyad Kamal gets on the stage at the region's largest technology conference, Arabnet Digital Summit and piles into a stream of data that he's been seeing over the past year. As the COO of Aramex, one of the region's largest express and freight service providers, Iyad serves a big chunk of the e-commerce sector's box moving requirements across the region and beyond.

The data is well worth checking out and even more so if you're an observer of the change in the region's payment habits.

2013

2014

2015

I thought it would be a fun exercise to have a dig through Naspers' publicly available reports and financials to see if I could arrive at a valuation for Souq given their recent mega $275m funding announcement, which if word on the street is to be believed, is a cumulative of funds that have been raised since mid-2015 or so.

I dug back through to Nasper's first investment in Souq that took place in October 2012 and ended at the last available information as of September 2015.

Here are a few highlights:

Souq's implied post money valuation as of Nasper's last investment in May 2015 was $866,918,578.44.

Nasper's has invested a total of $163,941,048.34 to date.

Souq's valuation has jumped 601% from October 2012 through to May 2015.

And a few charts:

The change in Souq's valuation over time

The change in how much Naspers has invested over time

And here's what you're really after:

Notes:

The South African Rand (Naspers' base currency) has had a wild ride and its fluctuation has an impact on the USD valuation. For example ZAR / USD was 9.94 on 15th May 2015 but jumped to 12.43 by the 15th of July 2015. That has a material impact on the USD value of the ZAR 802m dilution gain, which in turn has a material impact on the valuation. I've taken the 15th May 2015 number to keep it consistent with the rest of the analysis. The inferior exchange rate actually drives the latest valuation down to under $700m, which is unlikely.

I also found it interesting that Naspers' latest investment was significantly lower than its previous investments, which generally have increased per round over time. The June 2013 round is a bit of an anomaly, but is not significantly lower than the October 2012 round. While I can only speculate, if I take this together with them stating that they decided not to participate in the the July 2015 round, it points towards a change in sentiment towards the investment. Note that the VC space in the Valley was starting to voice concerns about valuations towards this time. I can't see an investor having invested in excess of $160m allowing themselves to be diluted if everything were bright and rosy. In the same note Naspers' indicated that they decided not to participate in Flipkart's rounds in April 2015 and July 2015, again allowing themselves to be diluted to 14.95%, while taking a nice dilution gain.

Unfortunately it'll be a while before we see more data from Naspers. Their FY ends on 31st March 2016, but they don't report until well into the summer. It's very likely that the additional investment from Standard Chartered (I heard $50m), IFC ($27m) and Baillie Gifford has pushed Souq's valuation to above $1 billion turning it into the region's first unicorn (with rainbows).

I figured that using the Internet Archive to get snapshots of Talabat's about page may give me a bit more history, which I compiled and graphed for easier consumption.

Mid 2013 to early 2015 was an incredible period, accelerating Talabat from 500 restaurants to 1400 restaurants listed, and driving total orders north of 9 million, tripling volumes over an 18 month period versus it taking 9 years to drive the first 3 million orders.

If you take the entire 11 year period since inception this gives us an average of 900,000 orders per year. However to factor in the acceleration, I decided to use the December 2013 through to February 2015 period and rounded this down to turn it into data for a single year, constituting the whole of 2014.

2014 resulted in 5 million orders. Rather than using my previous estimate of $22 per order, I took foodpanda's estimated order value in 2014 as a benchmark (published as part of Rocket Internet's February 2015 business update) resulting in $14 per order at today's exchange rates. I conservatively rounded this up to $15 to account for slightly higher orders values in the GCC given higher disposable income.

foodpanda is an appropriate comparator as Rocket describes it as the market leader for online takeaway ordering in emerging markets. They're currently present in 39 countries and are more Asia centric than Rocket's other large play in the space, Delivery Hero.

$15 results in total gross order volume of $75,000,000.

RevenueGiven that the business is a service, I estimate gross margins in the 15% to 25% range, giving us revenue ranging from $11,250,000 to $18,750,000.

The average number of restaurants during 2014 was 1050. That equates to $10,714 to $17,857 per restaurant. A range that feels a touch high.

Using foodpanda's revenue as a backstop results in a more conservative gross margin of 10%, which equates to a more reasonable $7,500,000 in revenue and works out to $7142 per restaurant.

What is interesting is that foodpanda's 2014 revenue per restaurant works out to $399. This could be due to a variety of reasons such as relative income and the lower cost of food in the more populous markets where foodpanda is present.

It also perhaps indicates why Rocket was keen to accelerate in the Middle East via an acquisition versus growing out and expanding their existing play in Saudi Arabia and Jordan, HelloFood.

Revenue MultipleUsing $170,000,000 as the cost of the acquisition, at the low end of the gross margin range we end up with a revenue multiple of 15.1x, and on the high end a multiple of 9x.

Using the 10% backstop, results in a multiple of 22.6x.

A range of 9x to 22.6x is a large spread, but is at least a 3x premium to rounds that have recently been raised in the region.

Unfortunately the dataset isn't comprehensive, but provides indications as to why Talabat was an interesting target: Strong growth, market leadership and the potential for relatively higher margins from the region.

Hopefully, we'll see a bit more data when Rocket Internet releases their H1 2015 interim data in September 2015.

A great story and an incredibly good sign for the region's technology sector.

"In July 2013 the group acquired an additional interest of 28,6% in Dubizzle, an online classifieds platform centred on Dubai. The group's total interest in Dubizzle increased to 53,6% and the group now accounts for Dubizzle as a subsidiary. The fair value of the total purchase consideration was R939m, consisting of R477m in cash for the additional interest and R462m being the acquisition date fair value of the existing interest held in Dubizzle”

At today’s values (1 ZAR to 0.093 USD) , that values Dubizzle at a total of ZAR 1.752 billion, which is the equivalent of USD 162 million.

"In June 2013 the group acquired an additional 6,1% interest in Souq Group Limited, an online retailer, marketplace and payment platform business, with operations in the UAE, Saudi Arabia, Egypt and Kuwait, for R296m in cash. During March 2014 the group acquired a further interest of 11,8% in Souq Group Limited for R911m in cash. The group now has a 47,6% interest in Souq Group Limited”

As of the last round of funding, Naspers is valuing Souq and its subsidiaries at ZAR 7.720 billion, which equates to USD 717 million at today’s values.

It’s rumoured that Souq’s revenue line is in the USD 300 million range, which would give it a 2.39x revenue multiple.

Extracting from Naspers’ presentation deck, their total reported e-commerce revenue for e-commerce e-tail (i.e. not classifieds and other forms) was ZAR 10.705 billion (USD 994 million) of which 11% came from Middle East & Africa.

Assuming that Souq is Naspers’ only major investment in the region, and using their method of equity accounting, their share (47.6%) of Souq’s revenue is equivalent to ZAR 1.178 billion (USD 109 million), which would result in total revenues at Souq of USD 229 million.

In terms of Naspers’ recent investment, that equates to a 3.13xrevenue multiple, which feels like a fair multiple given the region’s context, but doesn’t even come close to what we typically hear of from Silicon Valley.

In June 2013 Naspers invested an amount of ZAR 296 million to acquire an additional stake of 6.1% in Souq, to bring their total interest to 35. 8%.

At this point, Naspers valued Souq at ZAR 4.852 billion, the equivalent of USD 450 million at today’s values (note that ZAR depreciated by 14% from March 2013 through to March 2014, creating an additional positive impact for Naspers).

Extracting from the deck, their total reported e-commerce revenue for e-commerce e-tail as of September 2013 was ZAR 6.651 billion (USD 616 million) of which 3% came from Middle East & Africa.

Again, assuming that Souq is Naspers’ only major investment in the region, their share (35.8%) of Souq’s revenue is equivalent to ZAR 199.53 million (USD 18.47 million), which would result in 1H 2014 revenues at Souq of USD 51.52 million.

In terms of Naspers’ June 2013 investment, that equates to a 2.29x revenue multiple, if you extrapolate Souq’s 1H 2014 results in a straight line. Given that it looks like revenue has accelerated considerably from September 2013 through to March 2014, it is likely that the revenue multiple was closer to the recent multiple of 3.13x.

As a final piece of icing, in terms of our wider regional context:

"During May 2014 the group invested a further R543m in cash in Flipkart. The group now has a 17,7% interest in Flipkart on a fully diluted basis"

It looks like the additional 1% acquisition in Flipkart took place at a USD 5 billion valuation.

Lots of food for thought for regional investors trying to figure out whether the e-commerce train is worth jumping on.